Money markets expect the Bank of England to raise interest rates on Thursday for the first time since 2023, almost fully pricing a quarter-point increase in Bank Rate to 4% from 3.75%, according to Trading Economics.

The decision is due at noon in London on Nov. 5, or 8 p.m. in Hong Kong and Singapore, alongside a new Monetary Policy Report. For investors in Asia who hold gilts or sterling, the hike itself is largely in the price. What moves markets will be the vote split and how far the committee endorses the further increases traders already expect in February and July.

What markets are pricing

Traders have held their view through the government's Oct. 28 Budget. A day after Chancellor John Healey's statement, money markets were fully pricing a November increase with a second by February, Trading Economics reported on Oct. 29. By Oct. 30 they also priced a rise in July and put the odds of another move by December 2027 at about 50%.

Commonwealth Bank of Australia put the probability of a November move at about 95%, and Brown Brothers Harriman called it "pretty much a done deal," Pound Sterling Live reported on Oct. 23. Lloyds Bank said markets then priced four hikes over the coming year, which would take Bank Rate to 4.75%.

The Budget did little to shift that outlook. Healey's fiscal headroom fell to £15 billion from about £24 billion, and markets expected the package to have little bearing on the rate meeting, Trading Economics said. The Budget's tax and energy measures left gilts slightly firmer rather than weaker.

The 10-year gilt yield fell below 5.3% on Oct. 29, a one-month low, and slipped further on Nov. 2 to its lowest level since Sept. 22 as Brent crude dropped under $110 a barrel, according to Trading Economics. Sterling climbed above $1.34 on Oct. 30, its highest since mid-September, and gained about 1% in October, its first monthly rise since August.

Inflation is moving the wrong way

The case for tightening rests on prices. Consumer price inflation rose to 3.5% in September from 3.1% in August, the Office for National Statistics said on Oct. 21. Economists had expected 3.4%, Alliance News reported, and the reading was the highest since October 2025.

Transport, mainly motor fuels, made the largest upward contribution, the ONS said. Motor fuel inflation reached 29.8%. Services inflation, which the committee watches for domestic pressure, rose to 3.7% from 3.4%, and core inflation, which strips out energy, food, alcohol and tobacco, rose to 2.8% from 2.6%. Producer input prices jumped 8.3% from a year earlier, up from 6.7% in August, as crude oil costs rose.

The labor market has also surprised on the strong side. Unemployment fell to 4.7% against a consensus of 5%, Pound Sterling Live said, while regular pay growth was 3.7%.

In September, bank staff projected inflation of about 3.75% in the fourth quarter and slightly above 4% in the first quarter of 2027, according to MTS Insights. Higher wholesale oil, gas and electricity costs explained almost all of the upward revision. Pantheon Macroeconomics expects inflation to peak at 4.8% in February and stay above 4% until July.

How the Monetary Policy Committee may split

The nine-member committee held rates in a 6-3 vote announced on Sept. 17. Megan Greene, Catherine Mann and Huw Pill voted for an immediate rise to 4%, the minutes show. Governor Andrew Bailey wrote then that holding was appropriate at that meeting but that policy "may have to tighten" if the Middle East conflict persisted and the risk of second-round effects increased.

Alan Taylor, another member, sat at the other end of the debate. He wrote in the September minutes that Bank Rate remained "materially above my estimate of neutral at 3%."

Forecasters broadly agree on November but differ on what follows, according to Pound Sterling Live. Nomura and Danske Bank added a November hike to their forecasts in the week of Oct. 23. UBS expects a second increase in the first quarter of 2027, taking Bank Rate to 4.25%. ING called pricing of 100 basis points of hikes by June "way too hawkish." Credit Agricole expects a "dovish hike," a rise paired with cautious guidance that falls short of market pricing, while Lloyds said Pill was skeptical of the market path.

That gap is the risk for sterling. ING described the pound as a high-carry European currency if the tightening cycle gains credibility, while Credit Agricole said a dovish message would erode sterling's rate appeal against the euro and the dollar.

The committee will also update its forecasts on oil and gas. Brent and British wholesale gas had risen 36% and 78%, respectively, between the July Monetary Policy Report and mid-September, MTS Insights reported. Crude's recent slide below $110 gives members some room to temper the guidance even as they raise rates.

The minutes, the vote and the Monetary Policy Report are published together at noon on Thursday, covering a meeting that ends on Nov. 4.